Nippon Sheet Glass Co. is seeing a sharp rise in profits after dramatically reducing its assets over the past two years.
Japan“s second-largest sheet glass maker sold loss-making businesses and clos…
Nippon Sheet Glass Co. is seeing a sharp rise in profits after dramatically reducing its assets over the past two years. Japan“s second-largest sheet glass maker sold loss-making businesses and closed plants, in its information/electronics division and also in its core glass/building materials division. As a result of the fall in fixed costs, the firm forecasts a steep profit rise for 2004. The company“s next challenge is take advantage of demand for new products, such as special glass for vehicles and office equipment, before the effects of the restructuring fade away next fiscal year. “Our restructuring efforts have finally paid off,” Chairman Yozo Izuhara said. He was referring to the small April-June 2004 operating profit for the information/electronics division, a business that had been making heavy losses. In fiscal 2000, information/electronic division posted JPY 13.4 billion in operating profit, nearly half of the company“s total, on robust sales of microlenses for optical communications systems. However, in fiscal 2001, demand plummeted, and Nippon Sheet Glass suffered a JPY 20 billion fall in earnings, forcing the firm into restructuring. The company first consolidated three domestic and five overseas lens plants into two: one in Sagamihara, Kanagawa Prefecture, and the other in the Philippines. It also cut annual lens output to 10 million from 250 million, and cut inventory by 50%. The drive resulted in a JPY 1.9 billion charge from eliminating fixed assets in fiscal 2002 and a JPY 4.2 billion charge from disposing of inventory. Under the principle of withdrawing from businesses that have posted losses for three consecutive years, the company sold the glass magnetic disk operations in 2003 as well as a subsidiary that handled resin products. In the restructuring, the firm did not allow an exception even to its core glass/building materials operations that account for more than 60% of the firm“s group sales. “The slide of the information and electronics division, which had been the driving force of our earnings, into the red prompted us to rethink about our core operations as well,” said Hiroyoshi Koshiba, general manager of the finance and accounting department. Heat-insulating, anti-burglar functional glass for housing is made by putting two sheets of glass together. Previously, the company produced sheet glass at one plant and assembled it at another. In fiscal 2002, however, it merged the two processes into one plant. It also ceased making fireproof glass after selling a debt-laden manufacturing subsidiary in China. The radical restructuring went a long way toward improving the company“s bottom line. The value of tangible fixed assets at the company fell 25% from JPY 168 billion in fiscal 2001 to JPY 126.2 billion at the end of March 2004, and inventories contracted to JPY 36.1 billion, resulting in the best inventory turnover in a decade in fiscal 2003, at 7.23. The company has also reduced interest-bearing debt, using proceeds from the sale of its Osaka head office as well as unwinding cross-shareholding arrangements with banks and business partners. Its debt fell 30% from the latest high in fiscal 1999 to JPY 138.4 billion at the end of March, the lowest in a decade. The company “has taken all possible restructuring steps,” said Hiroshi Matsuda an analyst with Mizuho Securities Co. The initiative is estimated to have cut fixed costs by about JPY 2 billion at the glass/building materials division and JPY 6 billion at the information/electronics division. This means that all of the expected JPY 4 billion gain in operating profit in fiscal 2004 will come from the reduction in fixed expenses. The company“s stock price earnings ratio stands at just above 24 at present. The strong ratio, higher than the 16 posted by larger competitor Asahi Glass Co., highlights “market expectations of profit growth following the aggressive restructuring,” said Makoto Kurosawa, an analyst for UFJ Tsubasa Securities Co. A new medium-term business plan, due in November 2004, is expected to call for renovating production facilities for auto glass, increasing R&D investment for glass used in construction and boosting the sales of functional glass. The business plan will support the firm“s switch to an “offensive” strategy now that it has completed its restructuring. “We have been desperate to secure an operating profit,” said Masakuni Nitta, senior managing officer in charge of finance. “From this fiscal year, we will gradually increase capital spending.”